The stock market on Thursday recouped a nice portion of Wednesday’s losses, demonstrating that buy-the-dip chivalry is not dead and that there is still some seasonal/trend momentum in the market.
It is reasonable to think that there won’t be much momentum in the market today, as participants turn their attention to the extended Christmas weekend that will have markets closed on Monday. Then again, it has also been reasonable to assume that the market would give way to some selling momentum after the run it has had since late October, and that hasn’t happened.
So, we suppose one shouldn’t be surprised if the market does nothing today or does a lot.
Prior to the release of the economic data at 8:30 a.m. ET, the equity futures market wasn’t doing much. The exception was the Dow Jones Industrial Average futures. They were underperforming noticeably on account of weakness in Nike (NKE), which was down 11.8% in the wake of its fiscal Q2 earnings report and disappointing guidance.
Some volatility was injected into the futures trade, however, following the release of the data, which provided a little algorithmic reason to sell and buy based on the headlines.
Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October.
The PCE Price Index declined 0.1% month-over-month (Briefing.com consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. The core PCE Price Index, which is the Fed’s preferred inflation gauge, increased 0.1% month-over-month (Briefing.com consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%.
The key takeaway from the report is that it threads the needle for a Fed aiming to bring down inflation with higher rates, but not tank the economy in the process. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes is the stuff that soft landings/no landings are made of.
Separately, durable goods orders surged 5.4% month-over-month in November (Briefing.com consensus 2.5%) following an upwardly revised 5.1% decline (from -5.4%) in October. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.3% decline (from 0.0%) in October.
The key takeaway from the report was found in the reading for nondefense capital goods orders excluding transportation — a proxy for business spending. It was up 0.8% month-over-month on the heels of a 0.6% decline in October, connoting a welcome reacceleration in order activity that will mesh with a soft landing outlook.
Treasury yields saw some knee-jerk selling in the immediate wake of the the release and the equity futures did as well. In aggregate, the income, spending, and durable goods orders data were sturdy, so the instantaneous connection might have been that they will perhaps forestall a rate cut in March even though the inflation data continue to improve.
Also, we can’t dismiss that the market, which was feeling optimistic in front of the release of the core PCE Price Index, was ripe for a sell-the-news response.
In any case, both markets soon regrouped and wiped away most, if not all, of the knee-jerk losses.
The 2-yr note yield, at 4.33% just before the release, shot up to 4.39% and is back at 4.35%. The 10-yr note yield, at 3.85% before the release, climbed to 3.89% and is back at 3.87%.
The S&P 500 futures, meanwhile, are up 10 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 44 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 56 points and are trading 0.1% below fair value.
That is some mixed positioning for a market that could be poised to do something or nothing at all today.
Happy holidays!
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Originally Posted December 22, 2023 – Ready for something or nothing at all
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